Difference Between NPS and OPS

Sannihitha Ponaka •

Updated on 24 Oct, 2023

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NPS vs OPS – What is the Difference?
NPS vs OPS – Which is Better?

The National Pension Scheme (NPS) is a retirement scheme. Under this scheme, the subscriber shall make regular investments in the scheme. The funds are invested in market-linked instruments. Thus, NPS offers higher returns than other pension schemes. 60% of the corpus on maturity is tax-free, while the remaining 40% is taxable and must be invested in annuities. On the other hand, Old Pension Scheme (OPS) offers a monthly pension to government employees based on the last drawn salary. The scheme aims to offer regular income for employees during their retirement. This article highlights the differences between NPS vs OPS.

According to the New Study Published By RBI
RBI warns against the return to the OPS (Old Pension Scheme), estimating threat of creating a fiscal burden of 4.5X times higher than the existing NPS system. The study says that revering to old pension scheme would impact negatively on govt finances and increase fiscal stress in medium to long-term duration. Download Report

NPS vs OPS – What is the Difference?

Following are the key differences between NPS vs OPS:

Basis of Difference	NPS	OPS
Full form	National Pension Scheme	Old Pension Scheme
Eligibility	All Indian citizens (18 to 65 Years Age)	Government employees
Contribution	No Limit	Employee 10% and Government 14%
Pension Amount	60% as lump sum and 40% reserved for getting pension	50% of the last drawn salary.
Tax Benefits	Tax-deductible under Section 80C and Section 80CCD (1B)	No tax benefits are applicable.

NPS vs OPS – Which is Better?

The Old Pension Scheme is a pension oriented scheme. It offers regular pensions to employees during retirement. The pension amount is 50% of the last drawn salary by the employee. Thus, the pension amount is constant.

On the other hand, the National Pension Scheme is an investment cum pension scheme. NPS contributions are invested in market-linked securities, i.e., equity and debt instruments. Therefore, NPS doesn’t guarantee returns. The investments are volatile and hence have the potential to generate significant returns. The asset allocation between debt and equity is dynamically adjusted with your age. As you near retirement, the equity allocation in your portfolio will reduce.

Therefore, if you wish to save for retirement and are willing to undertake certain risks with your investment, NPS is a suitable option. Furthermore, investments up to INR 1,50,000 per annum in NPS are tax-deductible under Section 80C of the Income Tax Act, 1961. Also, an additional INR 50,000 is tax-deductible under Section 80CCD. Thus, with NPS, you can plan your retirement corpus well and at the same time enjoy tax benefits.

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